‘Buy now, pay later’ customers hit with shock fees for missing interest free deadlines
Citizens Advice said it has helped 24,000 people with nearly 50,000 catalogue or mail order debt problems in the last year – with 70% of the issues related to dealing with debt repayments.
‘Buy now, pay later deals’ allow people to delay paying for items for a period of time – such as up to 6 or 12 months – but if they don’t pay off what they owe in full by an agreed date then interest charges are backdated to the very start of the agreement.
This can leave people with unexpectedly large bills – sometimes costing more than twice the original amount they borrowed, Citizens Advice said.
The charity helped one man who bought a laptop costing £700 from a catalogue company on a one year interest free deal. He developed health problems which meant he had to give up work, and struggled to pay back the final instalment of £150 within the interest free period. He was left facing a bill for interest that cost almost as much as the laptop.
Another man who bought a £600 iPad from a catalogue company on a year-long interest free deal still owed £100 at the end of the interest free period, and was hit with a backdated charge of nearly £700 interest – more than the original cost of the iPad.
Understand what you’re signing up for
Citizens Advice Chief Executive, Gillian Guy said: “Missing a payment deadline can make the cost of catalogue borrowing sky-rocket.
“In some cases people have nearly paid back everything they owe but because they’ve run out of time their debts have suddenly soared to double what they originally borrowed.
“Buy now, pay later deals help people spread the costs of catalogue purchases but it’s vital customers understand what they are signing up for and what will happen if they don’t repay on time.
“Clearer explanations by catalogue firms when advertising these deals will prevent people being hit with shock bills that could send them spiralling into debt.”
Citizens Advice’s analysis reveals the average catalogue debt of people the charity helps is £1,300. Younger people aged 25 to 29 are most likely to have problems with catalogue debts.
The Financial Conduct Authority (FCA) is examining catalogue credit as part of its review into the high cost credit market.
Citizens Advice is also calling on the FCA to extend its price cap on payday interest rates and fees to the catalogue credit market and turn its responsible lending guidance into rules to make sure people can always afford to pay back what they borrow.